[Gllug] [OT] Re: [Long] Down-under response. Was: File On 4 on waste in Govt computing projects

[Richard Jones]

On Sat, Mar 06, 2010 at 11:19:05AM +0000, Alain Williams wrote:
> On Sat, Mar 06, 2010 at 10:37:56AM +0000, Richard Jones wrote:
> 
> > Yes.  It's one reason why my parent's generation all live in much
> > bigger houses than I will ever do.  Mortgages they took out in the
> > early 70s inflated away.  Look at the bulge in this list of figures:
> > 
> > http://safalra.com/other/historical-uk-inflation-price-conversion/
> 
> I was going to say that house prices have risen far faster than RPI, but
> decided to check (I know that this is not playing the game :-) ), there
> are some contradictions, but the best seems to be:
> 
> 	http://www.pricedout.org.uk/Articles/StatisticsHousepriceinflationdata/tabid/99/Default.aspx
> 
> it shows that house prices have been between 3-5 times salary, but 6 times for the
> last few years. There is a lot of regional variation.

Doesn't matter.  The point is that if you entered into a mortgage for
£ 100 at the end of 1968 (the year my parents got their first
mortgage), by the end of 1969 the original loan has effectively gone
down to 100 - (100 * 0.054) = £ 94.60.  By 1978, ten years later, the
loaned amount is down to £ 36.63 and by 1988, it's down to £ 16.67.
Effectively the original debt has (mostly) disappeared.  This is what
we mean when we say that inflation gets rid of the loan.  If you knew
that inflation was going to happen ahead of time[1], then you would
pay the minimum possible amount back each year to save the loan from
repossession (if possible, you'd even allow a little interest to pile
up, because that debt gets eroded by inflation over time too).

(Note: This only applies if the interest rate is fixed, or lower than
the inflation rate, which was true for much of the 70s:
http://www.bankofengland.co.uk/statistics/rates/baserate.pdf )

This has nothing to do with whether house prices rise or fall over the
period, but if they rise faster than inflation (which they did),
you're doing doubly well.  You got a free house which is now worth a
fortune.  Now all you need is a younger generation of suckers who will
rack up huge debts which they'll be paying back for decades, and give
you that money.  Spend your retirement playing golf and going on
cruises ...

Rich.

[1] Of course, inflation has a lot of downsides too, like your cash
savings disappear at the same rate.  Turning them into a tangible
commodity (property, gold, oil, whatever) makes sense if you expect
inflation to go up.  Land, for example, is unlikely to go down in
value unless either the world population falls or we open up new
tracts of land on the moon, or start building artificial islands in
the ocean ...

(Is this getting off-topic :-?)

-- 
Richard Jones
Red Hat
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